Deregulation is rapidly transforming the monopoly structure of the U.S. electric power market. The mid to late 1990s saw renewables ushered into the power market for the first time in substantial quantity. Until 1995, utilities were structured around massive, central generating plants. Power was distributed to individual consumers through an elaborate network of power lines. Attempts to implement renewable energy generation were largely unsuccessful. The monopoly-induced constraint that generation occur in a single location created large, unwieldy systems that were not cost effective.
In response to oil supply crunches throughout the 1970s, Congress passed the Public Utility Regulatory Policies Act (PURPA). PURPA was intended to open the power market to alternative energy sources and reduce the nation's dependence on foreign oil. An important provision to PURPA requiring utilities to buy power from Non-Utility Generators (NUG) was hugely unpopular with utilities because it disrupted their own efforts to economically schedule generation. Also, the activity of NUGs at scattered locations on the grid tended to disrupt power flow. As a result, utilities made every effort to discourage NUGs and fight PURPA in the courts.
The Energy Policy Act (EPAct) was passed by Congress in 1992. Since PURPA was largely a failure. EPAct established new mechanisms to open the wholesale electricity market to outside generators. Specifically, EPAct created two new classes of power generators called Energy Wholesalers and Small-Power Producers (SPPs). Energy Wholesalers and SPPs were often independent companies cogenerating steam and electricity and selling them to industrial customers. For the first time, companies were able to contract for power with independent generating companies, often at substantially lower prices.
Industrial consumers, aware that some companies were getting excellent electricity prices by contracting power, began to demand that the government deregulate the wholesale electricity market. Such deregulation, they argued, would allow them to contract for power with generation companies in other states.
The fundamental precept of deregulation is the unbundling of generation, transmission and distribution systems. Generation consists of all possible methods of creating electric power. Transmission facilities transfer the generated power at high voltage to substations. Distribution systems deliver power from the substations to individual customers. The most common technique of implementing deregulation is to force utility companies to lease their transmission lines to an Independent System Operator (ISO). The ISO has the responsibility of matching electric demand with electric supply and setting the system-wide wholesale electricity price. The ISO buys power from the lowest bidders in the pool of available generation. Any generator who wishes to sell power registers a bid with the ISO. Public utility companies are still required to run the distribution system. Utilities may continue to run their generation facilities if they register as holding companies with the Securities and Exchanges Commission (SEC). Utilities that do not register will have to create separate generating companies or sell their generation to other companies.
The important change brought on by PURPA, EPAct, and deregulation is that anybody who generates a significant quantity of power can sell it to the grid. However, distributed power generators who do not individually generate a significant quantity of power have difficulty selling power to the power grid.
Accordingly, there exists a need for a system that allows distributed power generators to sell power to the power grid.